Key takeaways
- Unified VAT threshold: From January 1, 2025, a single €85,000 VAT exemption limit will apply across all EU Member States.
- Cross-border benefits: Non-resident SMEs can now access VAT exemptions in other EU countries if their total EU turnover stays below €100,000.
- Simplified compliance: A single registration window and reduced reporting aim to cut SME VAT compliance costs by up to 18% annually.
Effective January 1, 2025, the European Union is introducing a revised VAT scheme designed to support small and medium-sized enterprises (SMEs) across its Member States. This new framework aims to standardize VAT registration thresholds and extend these benefits to non-resident EU businesses.
Key features of the new VAT scheme
Uniform VAT exemption thresholds:
- Existing rule: Individual thresholds are permitted in Member States for VAT exemptions applicable to domestic small enterprises.
- New rule: A unified exemption threshold will be set, capped at €85,000 across all Member States.
Extended VAT exemption for non-resident SMEs:
- Existing rule: Only businesses established within a Member State can benefit from VAT exemptions.
- New rule: SMEs based in one EU state but operating in another will be able to access VAT exemptions. This is contingent on their turnover being below the national threshold of the operating state and their total EU-wide turnover not exceeding €100,000.
Administrative simplification:
- The new scheme offers streamlined registration and reporting processes, potentially reducing VAT compliance costs for SMEs by up to 18% annually.
- A single registration window in their home Member State simplifies processes for SMEs.
Objective and impact
This reform seeks to level the playing field for businesses across the EU, irrespective of their country of establishment. By reducing administrative burdens and compliance costs, the EU aims to foster a more conducive environment for SME growth and cross-border operations.
Frequently asked questions
What is the new EU VAT scheme for SMEs?
The European Union is introducing a revised VAT framework to simplify compliance and support small and medium-sized enterprises (SMEs). It standardizes VAT thresholds and extends exemptions to non-resident EU businesses.
What is the new VAT exemption threshold?
A unified VAT exemption threshold of €85,000 will apply across all EU Member States, replacing the current system where each country sets its own limit.
Can non-resident SMEs benefit from the exemption?
Yes. SMEs established in one EU Member State can now benefit from VAT exemptions in another, provided their turnover in that country is below its national threshold and their total EU-wide turnover doesn’t exceed €100,000.
How will this simplify VAT compliance?
SMEs will register and manage VAT through a single registration window in their home Member State, reducing paperwork and compliance costs by up to 18% annually.
What is the main goal of this reform?
The reform aims to create a level playing field across the EU by reducing administrative burdens and fostering SME growth and cross-border trade.
